I have been called "the Sam Spade of Money Management," “the Financial Watchdog” and "the Pension Detective." I was born Edward Ahmed Hamilton Siedle in Trinidad, British West Indies and grew up in Trinidad, Venezuela, Panama, Peru, England, Uganda, Egypt and the U.S. I am a former SEC attorney, former Legal Counsel and Director of Compliance to Putnam Investments. For over 20 years, I owned securities trading and investment banking firms. My firm, Benchmark Financial Services, Inc. and I have pioneered over $1 trillion in forensic investigations of the money management industry. I am a founder of the Whistleblower Forensic Opportunity Trust. I am nationally recognized as an authority on pensions and investment management matters, having testified before the Senate Banking Committee regarding the mutual fund scandals and as an expert in various Madoff and other litigations. I am an active member of the Florida Bar.

The email in my inbox bearing the subject line “Help” demanded my attention. As I considered the question posed in the email by the writer and her husband, an employee of a county in Michigan who is on the verge of retiring, I realized that I did not have a good answer to give them. In the past, I have almost always advised retiring public sector employees to resist the temptation to take their accumulated pension benefit in a lump sum. There are few, if any, investments offering as high a risk-adjusted return as a public pension. Stay in the pension and don’t even think about trying to manage your investments, has been my mantra. That sound advice worked well through the dot-com and housing bubbles and the 2008 market meltdown. But times have changed. What was once a prudent strategy now appears to hold new and unknown risks.

The writer’s husband was retiring from his job with Genesee County, Michigan. Genesee County contains Flint, Michigan — the hometown of General Motors. Flint’s finances are a mess and, I was told, the governor had just appointed a financial manager. My guess is that no alchemist applied for the opening because reimbursement for relocation from Washington, DC (the home of many of the nation’s most saavy financial alchemists), was not included.

The writer and her husband are afraid that Flint’s financial demise might cause the collapse of the county. The county pension fund, I was told, is suppose to be 70% funded. In my mind, given the lack of transparency and rigorous accounting standards related to public pensions, this merely means the pension is, at best, 70% funded. The husband had to choose, upon retirement, between a buyout or a lifetime pension. The writer noted that the Michigan Constitution guarantees her husband’s pension and that financial advisors they had talked to told the couple that municipalities in Michigan are not allowed to declare bankruptcy. The state will back up his pension, they were assured.

On the other hand, the writer went on to observe, the pension fund’s value is falling and to earn the promised benefits, the pension must earn 12% a year—a return which the couple is skeptical can be achieved. All I can say is that if Flint or Genesee County, Michigan, can guarantee investments will earn 12%, all of America (and indeed the world) will soon be moving to Flint. Flint will become the center for global investing.

As stated earlier, I don’t have a good answer to give public sector employees forced to choose between staying in pensions that promise benefits that may never be paid, or taking lump sums that cannot possibly provide a comparable level of retirement income. Rather than pontificate about the difficult decision facing a growing number of retiring government employees, I’d like to hear from readers. What would you advise this couple to do? Take the money and run, or gamble on Flint?

Addendum

The couple made their decision. Here’s what they had to say: “We thought long and hard and made the decision to take the money and go it alone. We did this after weighing a number of factors mostly rational, but some emotional. Even though the amount of money involved was substantial, it still represented a limited portion of our net worth. We are comfortable with our decision and grateful for your input. It may be worth noting that the option to withdraw one’s retirement money is being eliminated by the County. This is insidious because some of that money involves direct contributions from the employee and, if the pension goes bust, presumably the employee would lose his own contributions, along with the promised contribution from the employer. The buyout option we selected may not be the best for others. We have been successful as investors in both real estate and stocks and bonds. We are very conservative and have consistently beat the S&P 500 and the Dow. If we make a mistake it is our fault and we’ll live with it. If someone else makes a mistake with our money our only recourse is to get angry. Other public and private employer retirees flush with buyout cash are fat targets for financial advisors.”

Two points the couple raise deserve emphasis: First, the lump sum or buy out option, if made available by your employer, may be eliminated in the near future. It seems likely that, given the extreme underfunding of public pensions generally, that buy out options will soon be a thing of the past. Second, those who take the money and run will most assuredly be preyed upon by so-called professional financial advisers. Unless you’re confident you can swim in these shark-infested waters and not get eaten alive, you might be better off gambling on Flint.

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I am a professor in the State of Michigan’s pension system and have similar concerns. There is not a buyout option within the state system. Are there private companies that would buy my pension and provide a buyout? Who are they?

Apparently the buy out option for county employees was recently eliminated and, based upon your note, hasn’t been available for state employees. Given the underfunding of these public pensions, it isn’t surprising that buy outs are being phased out. There are private companies that will buy pension benefits but sales of such benefits are being legally challenged. In my opinion, selling or buying pension benefits is a bad deal, due to high middleman fees and legal risks.

You miss the point and are wrong anyway. I manage my own account but you can get good no frills management from good firms for much less than 1%. The Genesee County fund has very heavy management fees because like everything else in government they are wasting other peoples money. The point is are the pensions even solvent. Who cares about a point or two in management fees when the pension is 100% bust?